Taiwan’s house prices surging, amidst strong economic growth

Lalaine C. Delmendo | August 02, 2021

Taiwan’s house prices are surging again, buoyed by a strong economy and ultra-low interest rate environment.

Taiwan’s Lutheran home price index rose by 10.8% (9.4% inflation-adjusted) during the year to Q1 2021, a sharp improvement from the previous year’s 2.7% increase and the biggest y-o-y growth in seven years, according to Sinyi Real Estate Planning and Research. Quarter-on-quarter, nationwide house prices increased 4.3% (4% inflation-adjusted) in Q1 2021.


In Taipei, the capital, house prices were up 9.2% (7.8% inflation-adjusted) during the year to Q1 2021, in contrast to a 0.1% fall in the previous year. It was the capital city’s best performance since Q4 2013. On a quarterly basis, house prices in Taipei increased 2.5% (2.2% inflation-adjusted) during the latest quarter.

All of the country’s other major cities saw strong house price rises during the year to Q1 2021.

  • Xinbei house prices rose by 9.5% (8.1% inflation-adjusted) y-o-y in Q1 2021, up from the prior year’s 2.9% rise and its strongest performance since Q1 2014.
  • Taoyuan house prices rose strongly by 11% (9.6% inflation-adjusted), following a modest 2.1% y-o-y growth in Q1 2020. It is also the city’s biggest annual increase in seven years.
  • Hsinchu house prices surged 14.2% (12.8% inflation-adjusted) y-o-y in Q1 2021 – sharply up from the previous year’s 5.5% rise and its biggest annual expansion since Q2 2012.
  • Taichung house prices rose strongly by 10.7% (9.4% inflation-adjusted), the biggest growth since Q1 2014.
  • Kaohsiung house prices increased 10.4% (9% inflation-adjusted), up from a y-o-y rise of just 1% in Q1 2020 and its best showing in seven years.

Both demand and supply continue to rise, despite the pandemic. In the first four months of 2021, housing transactions in Taiwan’s six major cities rose by 19.3% y-o-y to 84,677 units, with Kaohsiung registering the highest growth of 24.7%. During 2020, housing transactions were estimated to have reached 250,000 units – the highest level in six years.

In the first ten months of 2020, the latest figures available from the Ministry of Interior, the total number of residential construction licenses issued rose by 7.7% y-o-y to 129,365 units, following strong growth of 22.1% in 2019 and 32.3% in 2018.

Despite the recent efforts by the government to prevent speculative buying, demand will continue to rise this year supported by the strong economy, as well as ultra-low interest rates.

“Investment activity is expected to be robust in 2021 amid abundant liquidity, the low cost of borrowing and strong demand from owner-occupiers,” said CBRE.

Taiwan’s economy grew strongly by 8.92% y-o-y in Q1 2021 – the fastest pace in over 10 years, thanks to a surge in exports amid strong foreign demand for electronic parts and tech products. Clearly, the economic repercussions of the COVID-19 outbreak in Taiwan have been relatively milder than in neighbouring countries, with the Taiwanese economy still growing by 3.1% in 2020.

Recently, the Directorate General of Budget, Accounting and Statistics (DGBAS) upgraded its economic forecast this year to 5.46%, from its initial projection of 4.64%. If realized, it would be the fastest growth in eleven years.

Housing affordability a major problem

Taipei is one of the world’s most expensive cities. Taipei’s house price-to-income ratio has risen sharply from just 6.4 in 2004 to about 15.8 in 2020, according to the country’s Ministry of Interior (MOI) – higher than London (8.6x), New York (5.9x), Toronto (9.9x), Sydney (11.8x) or Vancouver (13x). Hong Kong is still the world’s least affordable market, with a score of 20.7, according to Demographia’s 2021 International Housing Affordability report.

Nationwide, the house price-to-income ratio stood at 9.2 in 2020, from 8.58 a year earlier, based on MOI figures.

Recently, Taipei mayor Ko Wen-je stressed the urgent need to resolve the country’s affordable housing crisis before it provokes social unrest, similar to the case of Hong Kong.

Taiwan house price to income ratio taipei

“[In Hong Kong], high rent and housing prices are causing class struggle, a widening wealth disparity and accumulating resentment among young people,” said Ko. “Unless the problem is resolved, Hong Kong’s problem today could become Taiwan’s tomorrow.”

To address the problem, Ko announced that the city plans to build 50,000 public housing units in the next seven years, with around 9,000 units already under construction.

Housing demand was boosted after 2009 when the government cut inheritance tax rates from 50% to 10%, and interest rates were cut. Unmonitored speculation, low housing supply, and a long tradition of homeownership pushed house prices in Taiwan, particularly in the capital city, and particularly on high-end properties. A three-bedroom apartment, which cost just TWD6 million to TWD7 million in 1995, was sold for over TWD20 million last year.

From 2001 to 2020:

  • In Taipei City, the house price index rose by 216% (160% inflation-adjusted)
  • In Xinbei, the house price index rose by 236% (177% inflation-adjusted)
  • In Taoyuan, the house price index rose by 213% (158% inflation-adjusted)
  • In Hsinchu, the house price index rose by 175% (127% inflation-adjusted)
  • In Taichung, the house price index rose by 275% (209% inflation-adjusted)
  • In Kaohsiung, the house price index rose by 206% (152% inflation-adjusted)

Taiwan house price indices

“Unfortunately, buying a home remains unaffordable for most young Taiwanese, a situation we don’t expect to change in the medium term,” said Emily Dabbs of Moody’s Analytics. An average household in Taipei needs to pay two-thirds of income for a mortgage loan, far above the affordable limit of 30%.

Dramatic measures introduced to curb speculation

Worries about mainland speculators peaked in early 2008 when residential property prices rose by more than 10% y-o-y during the first quarter. Upward pressure further increased when Chinese banks based in Taiwan were able to offer mortgages after the signing of an MOU in November 2009.

From October 2009 onwards, the central bank actively urged banks to closely monitor mortgage-lending risks.  A big step was to assign a 100% risk weighting to non-owner occupied residential mortgages. Risk weightings for other home mortgage portfolios range from 50% to 80%, compared with 10%-20% for banks in other developed markets in Asia-Pacific that practice the Internal Ratings-Based Approach to credit risk.

In 2011 a luxury tax was introduced. Second homes not occupied by the owner and sold within one year of purchase were taxed at 15%, and those sold within two years of purchase taxed at 10%.

From March 2014 much tougher measures were introduced which caused house prices in Taiwan to drop 7.9% (3.7% inflation-adjusted) from Q2 2014 to Q1 2016. House prices increased by a minimal 1.8% in 2017 and 1.9% in 2018.

These were the measures:

In March 2014, property taxes on non-owner-occupied residential properties were raised to between 1.5% and 3.6%, from 1.2% to 2%.

Inspections of pre-sale house transactions were tightened. State-owned bank lowered loan-to-value ratios for first-time buyers from 80% to 70%, and to 50% to 60% for people owning more than one property.

On January 1 2016 a new property gains tax of as much as 45% took effect. Property sellers are now required to pay between 15% and 45% of gains based on market prices, instead of the previously used government-assessed values. Qualified property sellers with gains of less than TWD4 million (US$143,000) are exempt from the tax.

However as the effect of these market-cooling measures wane, house price growth is now accelerating again. Currently, house prices are rising by double-digit figures, following y-o-y increases of 6.5% in 2020 and 3.2% in 2019.

Because of this, the government has recently proposed measures that would tax houses and presale projects resold within five years of purchase. Accordingly, under amendments to the Income Tax Act which will come into force on July 1, a tax of 45% will be paid on gains from the sale of property within two years of purchase and 35% for gains made between two to five years. Foreign individuals and businesses are also required to pay a 35% tax for gains made after two years.

Residential construction continues to rise

Residential construction continue to rise, despite the pandemic. In the first ten months of 2020 (the latest figures available from the Ministry of Interior):

  • The number of residential construction licenses rose by 7.7% y-o-y to 129,365, following a 22.1% increase in 2019.
  • The total floor area of residential construction licenses increased 5.1% y-o-y to 18.85 million square meters (sq. m.), following a rise of 17.5% in 2019.

Taiwan residential construction

Taiwan Province accounted for the biggest share of about 24% of all residential construction licenses issued in Jan-Oct 2020. It was followed by Taichung with 21.4% share, New Taipei (16.5%), Taoyuan (14.7%), Tainan (9%), Kaohsiung (8.5%), Taipei City (5.5%), and Fuchien Province (0.4%).

New housing loans increase, amidst ultra-low interest rates

As a result of the central bank’s macro-prudential measures, although total outstanding housing loans rose by an average of 4.8% annually from 2010 to 2020, they remained absolutely steady as proportion of GDP, at around 40% of GDP.                                    

Taiwan interest rates

Most residential mortgages in Taiwan are variable rate, with an average maturity of 25 years. The average interest rate for housing loans stood at 1.357% in April 2021, down from 1.381% a year earlier and 1.622% two years ago.

In June 2021, the Central Bank of the Republic of China (Taiwan) held its benchmark interest rate at a record low of 1.125%, after cutting it by 25 basis points in March 2020 to buoy the economy amidst the coronavirus outbreak.

Taiwan housing loans

During the first four months of 2021, the amount of new housing loans rose strongly by 11.3% from a year earlier, to TWD208.87 billion (US$7.46 billion), according to the central bank.

Likewise, outstanding housing loans increased 9.5% y-o-y to TWD8.25 trillion (US$294.5 billion) in April 2021.

Taiwan’s vanishingly low rental yields

Taipei now vies with Monaco for the lowest yields in the world. Taipei is not a happy place to be a landlord. The owner of an apartment in Taipei will be lucky to realize 2% yields, except on the very smallest apartments. Currently, average rental yields in Taiwan hover around 1.5%.

Such low yields are often a sign of an overvalued market. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for vacant periods, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, it is safe to say that landlords in Taiwan earn nothing on their apartments.

Paradoxically Taiwan has one of the highest home ownership rates in the world at 87%, while social housing accounts for about 5% of households. And the trend towards home ownership is increasing. Because of this, Taiwan’s rental market is quite small, around 8% of around seven million households.

Taiwanese economy remains resilient

Taiwan’s economy grew strongly by 8.92% y-o-y in Q1 2021 – the fastest pace in over 10 years, thanks to a surge in exports amid strong foreign demand for electronic parts and tech products. Clearly, the economic repercussions of the COVID-19 outbreak in Taiwan is relatively milder than in neighbouring countries, with the Taiwanese economy still growing by 3.1% in 2020.

Recently, the Directorate General of Budget, Accounting and Statistics (DGBAS) upgraded its economic forecast this year to 5.46%, from its initial projection of 4.64%. If realized, it would be the fastest growth in eleven years.

Taiwan gdp inflation

Exports, which account for about 60% of the country’s GDP, are now expected to grow by 15.44% in 2021. In the first four months of 2021, Taiwan’s exports rose by a huge 28% from a year earlier to US$132.91 billion, and imports increased 22.4% to US$112.36 billion. As a result, it recorded a trade surplus of US$20.55 billion over the same period – up almost 71% from a year earlier.

Taiwan, heavily dependent on exports, was seriously affected by the US economic recession in 2008. The economy bounced back in 2010 with spectacular growth of 10.6%. From 2011 to 2019 the Taiwanese economy has grown by an annual average of 2.8%.

Taiwan unemployment

Consumer prices rose by 2.48% y-o-y in May 2021, the highest inflation rate since February 2013, mainly driven by a rise in transportation costs, according to the National Statistics.

In April 2021, unemployment rate stood at 3.64%, down from 4.03% a year earlier, as the labour market returns to pre-pandemic levels.

Tsai Ing-wen’s reelection widens China-Taiwan divide further

In the January 2020 presidential elections, Tsai Ing-wen of the independence-leaning Democratic Progressive Party (DPP) won her second term in office, after defeating her major challenger Han Kuo-yu of the mainland-friendly Kuomintang by close to 3 million votes.

The conflict between Mainland China and Taiwan started to escalate four years ago when Tsai assumed office and became Taiwan’s first female president. One of Tsai’s key economic policies is to reduce Taiwan’s reliance on Mainland China, which accounts for around 40% of the island’s exports. Tsai plans to form closer ties with the ASEAN.

Mainland China is highly suspicious of Tsai, warning her against any attempt at a formal breakaway. Early in 2016, the Chinese government announced that it had cut off official contact with Taipei. In December 2016, Taiwan sent a blunt message to China by preparing its military forces and stepping up its training exercises to fend off Beijing’s threats.

Taiwan’s relations with China reached a new low after China decided to boycott the Olympic-style sporting event, 2017 Summer Universiade, which was held in Taipei in August 2017.

In June 2018, the construction of a US$250 million complex that will house the new American Institute in Taiwan (AIT), which serves as the United States’ de facto embassy in Taipei, escalated further the tensions between Taiwan and Mainland China.

In July 2019, the US announced of its intent to sell 108 M1A2T Abram tanks and Stinger missiles worth US$2.2 billion to Taiwan, despite China’s demand to cancel the said sale. The weapons deal is a signal to China of US commitment to Taiwan. As an expression of outrage, China recently said that it would impose sanctions on US firms involved in the weapons sale, as it harmed China’s sovereignty and national security.

In September 2019, both Solomon Islands and Kiribati severed ties with Taiwan and officially recognized Beijing, amidst the latter’s assurance of providing development assistance to these small countries. Seven diplomatic allies have cut ties with Taiwan since Tsai came to office, including Burkina Faso, Dominican Republic, Sao Tome and Principe, and Panama.

“China stealing our allies, pressuring our international space won’t shrink the distance across the strait and won’t allow for peaceful, friendly development of cross-strait relations,” said Taiwan’s foreign minister Joseph Wu.

Taiwan now has only 15 diplomatic allies left.

China’s campaign to isolate Taiwan extends to minute details. In the past two years, Beijing has been sending warning to airlines to list “Taiwan, China”, rather than just “Taiwan”, on their websites. The move seems to be working - The Associated Press has found that about 20 carriers, including Air Canada, British Airways, and Lufthansa, now refer to Taiwan as a part of China on their websites. In addition, China fined a Japanese clothing company for listing Taiwan as the “country of origin” on packaging.

Since last year, China has also ramped up military pressure on Taiwan through repeated incursions into the latter’s airspace. Ironically despite rising tensions, Taiwan’s trade shipments to mainland China surged to a record US$151.5 billion in 2020 – up 14.6% from a year earlier. It accounted for almost 44% of Taiwan’s total exports last year, the highest since Tsai became president in 2016.

In a move to curb Taiwan’s economic reliance on mainland China and forge a free trade agreement with the US, Tsai has recently lifted a long-standing import ban against US pork, despite significant public pushback. In addition, Tsai also aims to join the 11-country trade pact Comprehensive and Progressive Agreement for Trans-Pacific Partnership to strengthen Taiwan’s economic ties with other nations.

Relations between Mainland China and Taiwan thawed when President Ma of the Kuomintang Party (KMT) assumed office in May 2008. He vowed greater cooperation with Mainland China and denounced independence for Taiwan, a sharp contrast to his nationalist but corrupt predecessor, Chen Shui-bian. In November 2009, several memorandums of agreement between Taiwan and China on financial cooperation were signed. These gestures reassured investors and home buyers alike. In June 2010, an Economic Cooperation Framework Agreement (ECFA) was signed by Taiwan and China. President Ma also accepted the 1992 consensus, which played a crucial role in lowering tensions with China and boosting cross-strait economic ties.


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